Detroit’s Bush meeting won’t change much

Roland Jones Associate editor • Profile • E-mail

The leaders of America’s Big Three domestic automakers finally got their audience with President Bush at the White House Tuesday, describing their meeting “candid and productive.” But analysts say the meeting is unlikely to change the outlook much for Detroit’s big automakers.

GM Chairman and Chief Executive Rick Wagoner, Ford Chief Executive Alan Mulally and Tom LaSorda, president and chief executive officer of Chrysler Group visited Washington as their companies are making massive job cuts and closing plants in an effort to stay competitive with their overseas rivals.

Their hour-long meeting with Bush and Vice President Dick Cheney, delayed for six months because of scheduling conflicts, was designed to raise the Bush administration’s awareness of some of the obstacles facing the companies, including the rising cost of health care, pensions, energy and commodities, like steel.

The auto executives also raised trade issues, such as the big advantage an artificially weak yen is giving Detroit’s Japanese rivals. GM’s Wagoner, speaking to reporters on the White House driveway after the meeting, said Japan “systematically” undervalues its yen currency, and that the three executives raised the issue directly with President Bush.

Wagoner said the automakers share a “strong conviction that the Japanese yen is systematically undervalued, which helps them to maintain significant trade balance surpluses in our industry,” adding: “I can’t honestly say that it appeared the president 100 percent saw it that way.”

Mitch Stapley, an analyst at Fifth Third Asset Management, said he was concerned the Big Three executives had spent too much time discussing currency manipulation with President Bush. U.S. automakers complain the Japanese government artificially suppresses the yen, making imported goods from Japan cheaper, including cars.

“If you have Honda making 80 percent of the vehicles it sells in the U.S. inside the U.S. and Toyota making 70 percent, you’re wasting your time,” he told CNBC. “You need to focus on pension and health care costs — that’s what will turn these companies around.”

Stapley said he is more concerned about what the big U.S. companies will need to get back to profitability.

“Ford just told us they won’t get back to profitability until 2009,” he said, adding that the major U.S. automakers still need to deal with a labor agreement that expires in September 2007. Health care and pension issues are also facing the Big Three, he said. If union negotiations lead to a strike, “then the financial cards are in the air for these guys,” he said.

Alan Tonelson, a research fellow at the U.S. Business and Industry Council, a Washington-based research organization, said he doesn’t think the Big Three have their act together in terms of asking for presidential assistance.

“Here they are talking about a trade imbalance because of a weaker yen, and while that issue is not really in doubt, I think it’s always a mistake to focus on a single foreign trade practice,” he said. “Foreign governments have a lot of latitude to change trade policy tactics, so if Japan did revalue their currency they could still easily increase other trade barriers and produce the same effect.”

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